We Really Have No Idea

in #leofinance2 months ago


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The recent inflationary trends have gotten many people’s attention but they may also being undermined given the fact that it has been almost 40 years since this magnitude of pressure has been experienced. In addition, it comes at a time where many individuals, corporations, and governments (so everybody) are highly leveraged to the addiction of debt. However, there are places in the world where this has unfortunately become a reality of life.

I experienced some of it during some recent travel that included Argentina. The country has been experiencing high levels of inflation for a number of years which has deemed it a hyper inflationary economy. This has enormous implications for those living there but also for those transacting as minor approaches have large financial impacts as I experienced. The latest report locally while I was there was demonstrating an over 50% annualized inflation rate.

I experienced a number of transactions that made me think that we in the United States really have no idea what can happen if inflation is not controlled. I came back from my travel humbled by the adversity of the people of Argentina and the challenges they have to live with these realities. I was lucky to have friends from there and living there that provided me some recommendations which surely helped while I was there.

First, there is an official FX rate for the peso which is around 130 per USD. This is controlled by the government as it is not a free market as any USD purchase must go through them. However, this has created a secondary market known as the blue dollar market which would enable people to exchange USD at a higher 215 rate. The limits for locals are so strict as they are only allowed to exchanged $200 (USD) worth of pesos a month with additional restrictions such as credit any USD payment made to the exterior. For example, if you subscribe to Netflix, those dollars paid are used against your $200 (USD) monthly limit.

Knowing this, I was able to setup an exchange when I arrived as anything I would purchase with my credit card would be at the official rate which increases my USD cost at the end of the day. In an effort to limit this impact, I exchanged about $1,000 when I arrived. It was amazing to see that the largest denomination they offer is 1,000 pesos which made me literally carry a bag of cash once I made the exchange. The locals say that the government does not issue a higher 10k bill as it would signal a victory to inflation.

My time in Argentina was amazing as I enjoyed the people and the city very well. The food was amazing and plentiful with quality being the best I think I have tasted. An amazing example of inflation happened to me as I experienced an increased price in my daily coffee from the same place twice while I was there! Shopping went a little too well as we came back with bottles of great wine and leather goods for the family. This put me in a situation on my last day as I ran out of local pesos to pay my hotel which forced me to divide my bill between cash and credit card payment. I was able to pay half my bill in cash at about $100 USD per night but my credit card was charge $200 USD per night for the other half. Amazing! Definitely something to consider given what we are living now worldwide!

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